MNI US OPEN - Jump in EZ Inflation Expectations Justify Cautious ECB Speak

NEWS

US/CHINA (BBG): Xi to Meet US Business Leaders for Dinner in San Francisco

Chinese President Xi Jinping is set to be the guest of honor at a dinner with top US business executives when he visits San Francisco for the Asia-Pacific Economic Cooperation summit next week, according to people familiar with the matter. Hundreds of people are expected to attend the dinner for Xi organized by US business groups, including chief executive officers of major US companies, said the people, who asked not to be identified as they aren’t authorized to speak about it.

US/CHINA (BBG): China Vice President Sees ‘Positive Signals’ in Ties With US

Recent high-level meetings have helped improve the China-US relationship, a top Beijing official said before an expected meeting between Xi Jinping and Joe Biden next week. The sitdowns “have sent out positive signals and raised the expectations of the international community on the improvement of China-US relations,” Vice President Han Zheng said Wednesday at the Bloomberg New Economy Forum in Singapore. The nations have traded visits by several top officials in recent months.

US (MNI): Good Night for Dems as Virginia, Kentucky & Ohio Votes Go Their Way

The Democrats recorded a strong night of results in the 7 November off-year elections, winning control of both chambers of the Virginia General Assembly, retaining the governorship of heavily-Republican Kentucky, and seeing Ohio enshrine the right to abortion in a citizen-sponsored measure. As was seen in the 2022 mid-terms, the issue of the US Supreme Court's Dobbs decision, returning powers on regulating abortion laws to states, has continued to impact state-level races.

EUROZONE (MNI): Eurozone Consumer Inflation Expectations Jump

Consumer price inflation expectations across the eurozone for the next 12 months picked up sharply in September, even as actual headline rates declined to near 2-year lows, a leading survey published Wednesday showed. The ECB's monthly Consumer Expectations Survey showed the outlook for prices over the coming 12 months rising to 4.0% in September, up from 3.5% in August. However, the outlook for prices three years ahead was unchanged at 2.5%, the survey showed. In September, actual headline HICP inflation slowed to 4.3%, the lowest in two years.

ECB (BBG): Can’t Exclude That More Rate Hikes Might Be Needed - ECB's Kazaks

ECB “cannot exclude the possibility that further rate increases might be necessary, but we simply don’t know,” Governing Council member Martins Kazaks says in a panel discussion in Riga. “We will not hold rates at very high levels a minute longer than necessary, but when we see that it’s necessary to reduce the rates we will do so,” he says

ECB (BBG): Not a Lot of Comfort from Recent Inflation Decline Says ECB's Lane

The European Central Bank “shouldn’t take a lot of comfort” from recent decline in euro-area inflation to 2.9%, chief economist Philip Lane says in Riga. Inflation started to fall, but remains quite high and it will only be in 2025 that it’s going to return to target, according to Lane. Says “a lot of the issues” will be services inflation and local costs especially wages will be very important if services inflation come back.

ECB (MNI): Better to Err on Side of Cutting Too Late - ECB's Wunsch

It would be better for the European Central Bank to err on the side of cutting interest rates a bit too late than too soon, Belgian National Bank Governor Pierre Wunsch said in a speech on Wednesday. While the eurozone appears “set for a soft landing in the short term” as inflation continues its gradual fall, risks remained “unusually large” both to the downside and upside linked to potential volatility in energy prices, Wunsch said, warning that it would be unwise to “declare victory over inflation” too soon.

ECB (MNI): "Far, Far Too Soon" for ECB Rate Cuts - ECB's Makhlouf

It is "far, far" too early for the European Central Bank to talk about cutting interest rates in the eurozone and it may even be too soon to take further hikes off the table, Irish central bank Governor Gabriel Makhlouf said Wednesday. Speaking on a panel in Dublin, Makhlouf said recent warnings from the International Monetary Fund not to declare victory too soon should be heeded.

ECB (MNI): Regulators Must Respond to Changing World - ECB's Makhlouf

Digitalisation of financial services will bring greater choice and freedom for consumers, but increased risk for regulators, Central Bank of Ireland Governor Gabriel Makhlouf said Wednesday in Dublin. Speaking at a central bank conference on regulation, Makhlouf said "as the financial system goes through a period of transition, we want to ensure that in their interactions with firms, consumers’ best interests are secured". Makhlouf acknowledged not all risks were external for regulators, with some a direct response to central bank action in recent years.

ISRAEL (BBG): Israel Says Troops Have Entered ‘Heart’ of Gaza’s Main City

Israel said its troops have entered the middle of Gaza’s main city, as they continue their operation against Hamas. “IDF forces are in the heart of Gaza City,” Defense Minister Yoav Gallant said late Tuesday, referring to the Israel Defense Forces. “They came from the north and the south. They stormed it in full coordination between land, air and sea forces.”

G7 (MNI): Foreign Mins Voice Support For Gaza Humanitarian Pauses, But No Ceasefire

In a largely-expected move, G7 foreign ministers - meeting in Tokyo - have voiced support for 'humanitarian pauses' in the fighting in Gaza, but have not called for a full ceasefire. In the statement the G7 "emphasise Israel's right to defend itself and its people in accordance with international law", adding they "support humanitarian pauses to facilitate urgently needed assistance, civilian movement, release of hostages."

UK (MNI): BOE Bailey Warns Against Protectionism, Splintering

Bank of England Governor Andrew Bailey said Wednesday he was "a strong advocate of free trade and open economies" and highlighted the risks of protectionism and financial market and regulatory fragmentation. Bailey, speaking in Dublin, said that recent episodes, including the demise of Liability Driven Investment funds which were based in various regulatory regimes, highlighted a need for greater co-operation among regulators and common standards.

UK (MNI): BOE MPC's Job Done; 1st Cut Late 2024 - NIESR

The UK's National Institute of Economic and Social Research predicts that growth will stay sluggish in coming quarters and that the Bank of England has done its job in tightening policy to get inflation back on the path down towards the 2.0% inflation target, although its will be late 2025 before the target is hit. In its quarterly forecast round published Wednesday, NIESR estimated that CPI fell to 5.1% in October, with the BOE penciling in 4.9%, and that it would then only decline gradually to 3.9% by end 2024 and to 2.0% by late 2025.

NORGES BANK (MNI): High Household Debt Key Stability Risk - Norges Bank

Many Norwegian households, particularly those with high leverage, are drawing down on savings in the face of higher interest rates, fueling financial stability risks, Norges Bank said in its latest Financial Stability Report. The fact that many households are highly indebted and are spending a rising share of their incomes on debt interest payments "is the most serious vulnerability in Norway’s financial system," the report stated.

CHINA (MNI): PBOC to Provide Emergency Liquidity - Governor Pan

MNI (Beijing) The People’s Bank of China will provide emergency liquidity support when necessary to heavily indebted local governments and enhance credit aid to property developers, Governor Pan Gongsheng said Wednesday. Pan, speaking at the 2023 Financial Street Forum in Beijing, said lenders will help local governments extend loans, swap existing debt and control incremental debt, and the regulator will monitor financial debt of local government funding vehicles.

CHINA (MNI): China to Curb One-Way Bet on the Yuan - Governor Pan

MNI (Beijing) The People’s Bank of China will ensure the stability of the yuan exchange rate and continue to reduce the actual lending rate whilst pursuing transformation of economic growth, Pan Gongsheng, the governor of the People’s Bank of China told the Financial Street Forum on Wednesday in Beijing. The Bank will continue to prevent any overshot of the yuan exchange rate and avoid "one-way and self-reinforcing expectations in the forex market,” said Pan, pledging to correct pro-cyclical market behavior and to address trade that disrupt market order.

CHINA (RTRS): China Authorities Ask Ping An to Take Controlling Stake in Country Garden, Sources Say

Chinese authorities have asked Ping An Insurance Group to take a controlling stake in embattled Country Garden, the nation's biggest private property developer, four people familiar with the plan said. China's State Council, which is headed by Premier Li Qiang, has instructed the local government of Guangdong province, where both companies are based, to help arrange a rescue of Country Garden by Ping An, said two of the sources who have direct knowledge of the matter.

BOJ (BBG): Ueda Hints at Chance of Policy Shift Before Real Wages Increase

Governor Kazuo Ueda signaled that a prolonged decline in real wages won’t necessarily keep the Bank of Japan from shifting toward normalization as long as its inflation target comes into sight. “If I’m asked whether real wages must be positive when we decide how long we continue with yield curve control and negative interest rates, it’s not necessarily so,” Ueda said in response to questions in parliament Wednesday. “It’s about whether we can forecast with certainty that real wages will be up amid a positive economic cycle.”

JAPAN (BBG): Japan Set to Allocate $13 Billion for Chips in Extra Budget

Japan is set to allocate almost ¥2 trillion ($13.3 billion) in an extra budget to boost its capacity to make and secure semiconductors at home, according to government officials familiar with the matter. Of the total, about ¥760 billion will go into a fund to support the mass production of chips, money that could be used for supporting a second Taiwan Semiconductor Manufacturing Co. factory in Kumamoto, southwestern Japan, according to the people who spoke on condition of anonymity because the matter isn’t public yet.

MNI RBA REVIEW - NOVEMBER 2023: 25bp Hike, Inflation Persistent

The RBA hiked rates 25bp to 4.35% after leaving them unchanged for four consecutive months. The meeting included revised staff forecasts which included the peak in unemployment within the time horizon revised down 0.25pp to 4.25%, below the NAIRU estimate, and CPI inflation returning to the top of the target band by the end of 2025 rather than “within” it. Despite the forecast changes, the tightening bias has been toned down but each decision remains highly data dependent, suggesting that the RBA doesn’t want to tighten again but will if new information dictates it, like this month.

NEW ZEALAND (MNI): Inflation Expectations Point to Further Easing in CPI

The RBNZ's measure of business inflation expectations points to a further moderation in CPI inflation over the rest of this year and reinforces the central bank's view that the economy is developing as it expects. 1-year ahead eased to 3.6% for Q4 from 4.2%, the lowest since Q3 2021 and 1.5pp below the Q1 2023 peak. The 2-year ahead measure has naturally been running below the 1-year and posted its third straight quarter at 2.8%, within the RBNZ's target band, but to two decimal places is the lowest since Q3 2021. Household inflation expectations are released on November 15.

MNI NBP PREVIEW - NOVEMBER 2023: Post-Election Fog

Following the delivery of relatively forceful monetary easing at the past two meetings (100bp in total), the NBP finds itself at a crossroads, having to decide whether to press ahead with further gradual cuts or pause and wait for a clearer picture of the economy and the post-election outlook. One must consider the policymaker’s perspective – which in this case is clouded by fresh uncertainties. We think that ultimately another 25bp rate cut is marginally more likely than an alternative scenario involving an on-hold decision.

COMMODITIES (BBG): Iron Ore Surges to 7-Month High After Country Garden Report

Iron ore surged to a seven-month high after a report that Beijing wants one of its biggest insurance firms to help prop up embattled property developer Country Garden Holdings Co. China has asked Ping An Insurance Group to take a controlling stake in Country Garden, according to Reuters. The insurance firm denied the report. China’s protracted real estate crisis has weighed on the nation’s demand for steel, and its main ingredient, iron ore. Any measures to support the sector typically lift iron ore prices as concerns ease over the outlook for consumption.

DATA

EUROZONE DATA (MNI): EZ Retail Trade Broadly In-Line with Expectations

• EUROZONE SEP RETAIL SALES -0.3% M/M, -2.9% Y/Y

On a monthly basis, Eurozone volume of retail trade was down -0.3% M/M in September (vs -0.2% consensus, -0.7% M/M revised prior from -1.2% M/M). The upward revision to the August data saw the Y/Y print come in a little higher than consensus at -2.9% Y/Y (-3.1% Y/Y consensus, -1.8% Y/Y revised prior from -2.1% Y/Y). This still marked a fall in Y/Y-terms versus August. The increased rate of decline was largely due to volume of retail trade in 'Non-food products (except fuel)' declining for the first time since May 2023 by -3.4% Y/Y.

FOREX: Markets on Course to Erase Entirety of NFP USD Dip

• The USD Index trades firmer for a third consecutive session, re-taking the 50-dma and putting the greenback on course to erase the entirety of the NFP-inspired dip posted on Friday. The moves coincide with a generally risk-off theme across asset prices, with both equity futures and core bond yields on the back foot.
  
• GBP/USD's slippage to new pullback lows comes amid light futures volumes across G10 currency futures. Most major currency futures contracts are seeing participation running 15-20% below average for this time of day. In spot, a close at current or lower levels in GBP/USD would secure a finish below the 50-dma, proving Friday's rally in the pair as corrective in nature, and would work in favour of a resumption of a medium-term downtrend. 1.2185 marks next support in focus, with markets shrugging off the speech from Bailey as non-monpol related.
  
• This leaves USD, CNY as the session's best performers so far, while EUR and GBP sit toward the bottom of the G10 table.
• Data is light Wednesday, with just the Bank of Canada summary of deliberations on the docket alongside September final wholesale trade sales data from the US.
• This should keep the focus on the speaker slate, with Fed's Cook, Williams, Barr and Jefferson set to make appearances as well as the Fed Chair Powell, who delivers opening remarks at a statistical conference at 1415GMT/0915ET. ECB's de Cos & Vujcic are also on the docket.

EGBS: Sit Off Session Bests, Long End Yields Remain Lower on Day

Core EGBs are off strongest levels but yields on cash benchmarks at the mid/long end remain lower on the day, with Bunds outperforming USTs across the curve.

• The uptick in 1Y inflation expectations to 4.0% (from 3.5%) in the ECB's latest consumer survey aided the move off session bests, but we note that the 0.5pp rise appears to be largely due to a sizeable jump in Spanish expectations .
• Bund futures are up 0.22 ticks today at 130.55, with 10y generic Bund yields down -1.2bp at 2.646% and Schatz yields up 1.9bp at 2.003%. E4bln supply of the benchmark 10Y Bund at 1030GMT will have also weighed.
• There has been little market impact from ECB-speak this morning, though Lane stating that we "should not take a lot of comfort from inflation at 2.9%" is of some note given his dovish leanings. Eurozone retail sales fell broadly in line with expectations.
• Periphery spreads sit wider to Bunds at typing, most notably in Portugal, as political uncertainty arising from ex-PM Costa's resignation yesterday continues to weigh on PGBs. The generic 10Y PGB/Bund spread sits 1.9bps wider on the day at 75.3bps while the BTP/Bund spread is 0.9bps wider at 190.1bps.
• The remainder of today's docket includes ECB-speak from Nagel, De Cos and Vujcic.

GILTS: Back From Best Levels, Curve Flatter, BoE Pricing Off Dovish Extremes

Gilt futures operate 15-20 ticks shy of best levels after topping out just ahead of 96.00.

• A quick reminder that local labour market matters and continued worry re: the health of the consumer probably factored into the early bid, which garnered further momentum as gilt futures broke through their October high.
• Next technical resistance is seen at 96.05, the Sep 25 high, while the next point of interest on the 10-Year yield front comes in at the September low, 4.212% (which equates to 96.14 in futures today).
• Cash gilt yields are 1-4bp lower, with the curve flattening a touch on the day.
• The rally in bonds also fed into the short end before the pull back from best levels. That leaves SONIA futures -0.5 to +2.0 through the blues, with the reds outperforming.
• BoE-dated OIS also flattened, before moving off dovish extremes alongside the move away from best levels in gilts. Liquid contracts on that strip are flat to ~1bp softer on the day as a result. The early dovish move saw yesterday’s extremes tested, although there were no substantial breaks.
• Comments from BoE Governor Bailey were relatively inconsequential for markets, although may have helped limit/counter the dovish move in OIS, He underscored the need to maintain the BoE’s interest rate policy in the fight against inflation, while stressing that it is too early to start discussing the idea of rate cuts.

EQUITIES: E-Mini S&P Remains Close to Mid-October Highs

Eurostoxx 50 futures traded higher last week as the correction from recent lows extends. Price has traded through resistance at both the 20- and 50-day EMAs. The broader trend condition is bearish, however, a clear break of the 50-day average, at 4183.40, would signal scope for a stronger bull cycle and open 4256.00, the Oct 12 high. On the downside, key support and the bear trigger lies at 4001.0, the Oct 27 low. S&P e-minis traded higher last week and the contract is holding on to its recent gains. The latest recovery still appears to be a correction, however, price has cleared the 20- and 50-day EMAs. The break of the 50-day average - a key short-term pivot level - has strengthened bullish conditions. Sights are on 4430.50, the Oct 12 high. Key support and the bear trigger has been defined at 4122.25, the Oct 27 low.

• Japan's NIKKEI closed lower by 105.34 pts or -0.33% at 32166.48 and the TOPIX ended 26.96 pts lower or -1.16% at 2305.95.
• Elsewhere, in China the SHANGHAI closed lower by 4.897 pts or -0.16% at 3052.373 and the HANG SENG ended 101.7 pts lower or -0.58% at 17568.46.
• Across Europe, Germany's DAX trades lower by 60.37 pts or -0.4% at 15092.34, FTSE 100 higher by 1.02 pts or +0.01% at 7411.02, CAC 40 down 18.4 pts or -0.26% at 6967.83 and Euro Stoxx 50 down 18.6 pts or -0.45% at 4134.77.
• Dow Jones mini down 8 pts or -0.02% at 34207, S&P 500 mini down 3 pts or -0.07% at 4393, NASDAQ mini down 19 pts or -0.12% at 15354.25.

COMMODITIES: WTI Futures Reach Lowest Level Since July as Bearish Theme Strengthens

A bearish theme in WTI futures remains in play and the contract traded lower again yesterday. This week’s move down has resulted in a break of support at $80.20, the Oct 6 low. The breach highlights a stronger short-term reversal and a continuation lower would pave the way for a move towards $74.26, a Fibonacci retracement. On the upside, initial firm resistance has been defined at $83.60. The uptrend in Gold remains intact and the latest pullback appears to be a correction. Price has recently breached key resistance at $1953.0, the Sep 1 high, and $1987.5, the Jul 20 high. The continuation higher strengthens a bullish theme and opens $2022.20 next, May 15 high. Initial firm pivot support lies at $1936.6, the 50-day EMA. Clearance of this level is required to signal a short-term top.

• WTI Crude up $0.01 or +0.01% at $77.35
• Natural Gas up $0.01 or +0.35% at $3.143
• Gold spot down $3.08 or -0.16% at $1966.37
• Copper up $0.55 or +0.15% at $368.5
• Silver down $0.14 or -0.61% at $22.4953
• Platinum down $11.09 or -1.24% at $884.13